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The Certification Regime

The Parliamentary Commission on Banking Standards (PCBS) recommended a number of changes to provide greater precision about individual responsibilities.  The Banking Reform Act of 2013 created the legislative framework for the changes to be introduced.

Initially the changes introduced as part of the Increased Accountability Regulations only affected Banks, Building Societies, Credit Unions, Incoming Branches of overseas banks and PRA designated investment firms.  Collectively these are referred to as Relevant Authorised Persons (RAP). The regulations were extended to Insurers in 2018  and will incorporate all FCA solo regulated firms from 10 December 2019.

The changes introduce 3 tiers of regulation namely

The Senior Management Regime (SMR), Certification Regime and Code of Conduct (C-CON).

The existing Approved Persons regime is being replaced with the SMR and Certification Regimes. Specifically, the PRA and FCA wish to continue to pre approve the appointment of Senior Management Functions (SMF) with a company but pass on the responsibility of approval to firms themselves for people who fall within the certification regime.

The new list of SMFs is narrower than the existing Significant Influence Functions(SIFs).  The regulators will take an active role in their approval.  They will not require to pre approve anyone falling within the Certification Regime but reserve the right to challenge the process of approval used by the authorised firms.

The regulators have created a list of prescribed responsibilities to be allocated amongst the SMFs.  It is a requirement that each firm ensures that each SMF has a clear statement of responsibility(SoR) to provide absolute clarity of their role.  Each firm is also expected to produce a responsibilities map which they keep up to date to ensure there are no gaps in regulatory responsibilities.

The certification regime covers specific PRA material risk takers(MRT) and FCA Significant Harm Functions (SHF) which are roles that are deemed capable of posing higher levels of risk to the FCA achieving their objectives and consumer outcomes. The list of people in scope includes previous SIFs that are not included in the scope of the SMFs as well as people who require qualifications as part of their role -this includes financial advisers

In order to be certified individuals will need to have been trained on the new Code of Conduct(C-CON) and be deemed Fit and Proper using the requirements within the FIT sourcebook.

The code of conduct replaces the approved persons code (APER) and applies to all staff with a few exceptions.  There are 2 main tiers of conduct rules.  The first tier comprises 5 rules (CR 1-5) that apply to everyone in scope.  The second tier apply to SMFs only (SM1-4). However, the introduction of the code is staggered.

If you would like any assistance in designing your response to these regulations please contact us.  We have a team of consultants ready to assist you with any aspects of the Certification Regime.


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